Yes, maternity leave income is taxable
Congratulations to the new parents! Amidst the bustle of breastfeeding, diaper changes and baby's daily care remember that you are still required to report your EI benefits as income. In most cases, Ottawa does not withhold enough from your payments for your taxes so you may be facing a bill at the end of the year. Several parents are surprised to owe money after maternity leave, so you’d better anticipate than end up with surprises.
We spoke with Johan Girard, higher tax specialist at H&R Block, and she suggests putting this money aside, if you can afford to, of course. You may end up with a little extra after your return, but at least you will be sure to have enough to pay your taxes at the end of the year.
Amount for dependent children
The spouse with the lowest income must claim childcare expenses to the Federal government. Moreover, one of the parents can claim the tax credit for children under 18 for the year 2014. Provincially, the portion of subsidized childcare costs cannot be claimed. However, if your children attend private unsubsidized daycare, or if they participated in summer camps, you may be entitled to a refundable tax credit based on your income.
Pool your receipts
Spouses and common-law partners can pool their receipts for charitable donations and medical expenses to maximize their tax savings.
According to Ms. Girard, for every $200 donation, you will receive a tax credit of 15%, and for every dollar above the initial $200 donation, you will receive a credit of 29%. In addition, you can wait up to five years and claim everything at the same time. Consider grouping the receipts of the whole family. You will enjoy a better credit. The same goes for medical expenses. "At the federal level, for example, it is advantageous to take all the receipts and use them in the income statement of the person with the lowest income since the costs will be reduced by 3% of your individual income. It doesn’t matter at the provincial level since they are reduced by 3% of your family income.”
You can also pool receipts for the credit for public transportation since parents can claim transit passes for children under 19.
Prepare your tax return even if you have no income
The calculation for benefits such as the Canada Child Tax Benefit (CCTB) and the GST / HST is based on your last income tax return and are paid only if you are reporting. Both parents must file a return to get the CCTB. In Quebec, the benefits for child assistance and solidarity tax credit are also calculated based on your tax returns. You don’t need to earn any income to be eligible for these benefits, but failing to file your income tax return results in unpaid benefits. Ms. Girard adds that governments occasionally revise tax benefits for families and create tax cuts or give benefits that you will only know about by filing an income tax return. Therefore, it is best to produce this annual statement to receive all the reimbursements that are available to you!
Single-parent families
According to Ms. Girard, "single-parent families are entitled to amounts for eligible dependents if they have been at any time of the year with a child under 18." Basically, the calculation for a child is similar to that of a spouse who would not have a salary. If your child works, the amount he earns is reduced. The federal basic amount for a child is $11,138 and can reach $13,196 if the dependent is entitled to the amount for family caregivers. After all the calculations, you could get about $1,395 tax cut if you are entitled to a credit for an eligible dependent.
In addition, parents are entitled to an amount of $2,255 for children under the age of eighteen years at the end of the year. This amount will be equivalent to $282.44 tax savings. It will be abolished in 2015, but you can claim it for 2014.
Universal Child Care Benefit
In 2015, the universal childcare benefit (UCCB) will get better. It will be extended to children over five and under eighteen. For children under six, it will be increased from $100 to $160 per month and $60 monthly for children under the age of eighteen. While improvements take effect from January 2015, they will not be included in the monthly payments before July 2015. A retroactive adjustment will be included in your regular payment for July. Some taxpayers whose income is too high to get the Canada Child Tax Benefit will now be able to apply for it.
As the UCCB is taxable, single mothers should include it in their child's income if it is more advantageous for them.
RESP
The Education Savings Plan has no impact on the tax return of investing parents, but when their children use it, it will be included in their income, said Ms. Girard.
Then, the portion invested by parents will not be taxable, but the interests and Canadian subsidy will be.
Balance between income and benefits
Family benefits decrease as your salary increases. It is therefore possible that a wage increase does not affect your overall financial situation.
Avoid unpleasant surprises
As emphasized by Ms. Girard, “We think about our taxes around the months of March and April and when important changes occur. However in July, with both feet into the sand, we think about it less. We should keep track of governmental tax announcements throughout the year to avoid nasty surprises on the next year.”
Parents have a lot to do and don’t always remember to contact the government when they split up or when they’ve been with a partner for a year. Any changes in marital status need to be reported to both Quebec and Canada revenue services to avoid any bad surprises.
Do sports and arts activities are all credits?
Johan Girard, H&R Block
The government does not pay for everything, says Johan Girard, but this program is an incentive to make children practice sports and artistic activities. For children under 16, the allocated credit is up to $1,000 per year. For children's arts, a maximum of $500 per child is allocated for expenses paid. Keep in mind that these amounts are non-refundable tax credits, so they reduce the tax payable.
Ms. Girard also reminds parents to keep receipts from the previous season. “Parents often bring us receipts only for fall and forget the ones for the past spring activity. Declared fees for sports or artistic activities must have been paid during the tax year, between January 1 and December 31”.
